Treasury's 'costing hole' removes R&D constraints, says RSM Australia

Amid mounting concerns about the magnitude of the miscalculation involved in the federal government’s flagship R&D tax incentive program, RSM Australia has led calls for a reconsideration of technical oversights regarding refundable offset claims.

Tax&Compliance Mitchell Turner18 March 2016

The Treasury formula used to calculate the true cost of the program seemingly overlooked the non-tax deductibility of eligible R&D expenditure, leading companies to relinquish a 30 per cent tax deduction. Stephen Carroll of RSM Australia’s tax services division is therefore calling for a more realistic discussion, tabling the best mix of measures for an R&D tax incentive program.

“The biggest concern is that government will take the knife to R&D tax incentives at a time when there’s substantially more funding to go around,” said Mr Carroll.

Based on RSM Australia’s response to the R&D tax incentive review, much of the inconsistency in Treasury’s costings relate to a discrepancy in the calculation of the refundable R&D tax offset.

According to RSM Australia's numbers, the budget cost of the refundable tax offset should be close to 15 per cent of R&D expenditure, rather than the review’s rate of 45 percent.

“The magnitude of Treasury’s modelling oversight is good news for the R&D innovation."

“The $1 billion that RSM, together with other firms have effectively discovered for Treasury, not only shelves government concerns about constraining R&D tax benefits – following what they thought was a cost blow-out – but means there’s more to invest in significantly expanding the program,” he said.

Mr Carroll warned that overtures by government to limit the scope of eligible core R&D activities, based on Treasury's modelling, could be disastrous.

"The government should model the loss of R&D activities, from Australia to overseas, that would occur if the R&D tax incentive were degraded, as additional R&D that’s currently being undertaken," he said.